Money Supply Creation
Cameron, Norman E. "Simulation Money Supply Creation in Class." Economic Inquiry.35 (July 1997) 686-693.
Students play the roles of bankers, loan customers, and business firms to learn and experience the process of creating money. There are two versionsone is unstructured and the other structured, which also explores marginal efficiency of investment curve and broad versus narrow money. The bare bones of both simulations are as follows. The instructor hands out and explains the simulation rules. The classroom is divided into three zones (bankers, loan customers, and business firms). The instructor as central banker begins the game, injecting extra cash reserves into the system by buying Treasury bills from banker students. The bankers who sell t-bills go to the loan customer zone to find a borrower and lends the entire bag of cash to one borrower for an IOU. The banker adds the amount of the new loan to the loan category on the blackboard consolidated balance sheet of the banking system. The loan customer goes to business zone and buys what loan was for, paying with entire bag. The business receives as extra sales revenue and takes out cash reserve items (pebbles) for ready cash, and then negotiates terms for depositing money in a term or demand deposit. The transaction is noted on the balance sheet. The banker takes out pebbles for required reserves (specified in rules), and the extra required reserves are added in cash reserves category on balance sheet. The pebbles in the bag are excess reserves, so the banker finds a borrower. The simulation continues until all of the pebbles are gone from the bag. Discussion ensues. Specific rules of simulation are in article.